July 2009

Summary: With congressional and administrative attention now on the online advertising industry, the industry is responding with “principles” to continue self-regulation. Whatever the outcome of the debate now underway, TOUs and EULAs will change. To the business side of digital companies, these are boilerplate: To the lawyers, they should be seen as what they are–binding agreements with end users and that have serious consequences if they are too one-sided. You can read the entire report atwww.iab.net/behavioral-advertisingprinciples.

The online advertising industry has responded to the February 2009 FTC Staff Report on the topic (which is called “behavioral advertising”). That industry created a report on “principles” for managing these data. These principles represent an attempt to maintain the self-regulation structure now in effect–something that has not made regulators happy (rightly or wrongly).

You can read the report at the URL above. Here is our take on the principles:

Ad Industry Mobilization–the mere fact that disparate industry associations have gotten together is good news, because these people have great experience and expertise to apply to a topic that is really pretty nuanced.

No More Fine Print–well, everyone can dream. It is not so much that the industry will eliminate dense legalese in TOUs, but that the language is supposed to be drafted to be transparent–providing genuine guidance that end users can understand.

Actual Innovation–The report includes one innovation: an “approval” toolbar on browsers.

De-identification of data–this is the one we like the most. Finally, the ad industry is beginning to recognize that the data can be extremely valuable in their aggregate form, without recourse to knowing about the actual individuals. Pay attention to this one.

Sensitivity–This principles recognizes that not all data are created equal and some are more sensitive than others. Think of medical records.

Material Changes–gone will be the days of unilateral retroactive changes to TOUs. Actually, this is just a recognition that the Federal Trade Commission (FTC) will win on this point and that courts are moving in that direction, as well (See blog on Blockbuster case).

So What?

From a legal perspective, this will add more pressure on companies to change their TOUs, but from a strategic perspective, it is one more piece of the evidence of the growing appreciation–not of the data themselves but of their complexity and vast value. In other words, it is no longer an either/or debate: either the industry gets to collect everything or nothing.

Therefore, think about what kinds of data your company wants about use (and not necessarily about each end user).

May 2009

Summary: You might not have read it here first but you have read it here often: Courts are taking on—and deciding against—what they consider to be unfair terms in EULAs or TOUs. In this case, it was the federal district court for Northern Texas, finding that the arbitration clause was illusory. It is important to note that this case, in our opinion, does not stand alone but adds more case law attacking the terms of these online agreements. These cases are—and in particular this case is—consistent with one of the principal points central to the new FTC staff guidelines. The message: Complicated TOUs put the client at greater risk.

Introduction

In Harris v. Blockbuster, the court for the Northern District of Texas held that the arbitration provision of the online agreement for the use of Blockbuster was illusory. Dicta suggest even broader implications for the decision, but that alone was enough to cause some concern (we do not yet know if there will be an appeal, though it is probable).

As far as the court was concerned the main problem with Blockbuster’s online agreement was sort of a double-whammy. The agreement stated that Blockbuster could change the provisions at any time—which would, of course, mean that changes with retroactive effect would, in the opinion of Blockbuster, be enforceable. In this case, some disputes arose and Blockbuster then added an arbitration provision, which was to apply retroactively and thus eliminate much of the risk (from a trial).

So What?

So, online agreements (what we call EULAs and TOUs) with retroactive changes inserting (or affecting) arbitration provisions will run afoul of this opinion—of course, in that district. Moreover, the opinion carries some weight with other claims about online agreements. Many online agreements—perhaps a majority, perhaps many more—have such provisions enabling the publisher (in this case Blockbuster) the right to make retroactive changes to the terms. Suddenly, then (if you believe in Chicken Little), these provisions are at risk.

Ammunition & Guidance. Really, though, the opinion builds on a string of previous opinions that, taken together, provide both substantial ammunition for plaintiffs’ assaults on these agreements and, if you think about it, guidance on what to include—and exclude—from online agreements.

It is not necessarily a bad thing. The FTC staff report gives pretty clear guidance on what can be done: If a party wants a right to changes, then they should not be retroactive and the user must have some kind of right to agree (or not) to those changes going forward.

This is not some rogue court. The cases cited include some in the Fifth Circuit and some in Texas itself. With some serious contortions and impressive legal reasoning, one could distinguish this case from the facts and holdings of those precedents. But it is not so simple.

In just the last several years, quite a few courts have taken on the online agreements. They include courts in the Ninth Circuit and in Pennsylvania. The reasoning can be distinguished but not here. They all come to a smell test: Does this really smell like a contract?

These cases fall within an even longer line of opinions regarding the nature of agreements between corporations and consumers. As the FTC staff report pointed out (with copious footnotes), “fine print” cases have a long history. And it is a history where the “victor” has swung from the consumer to corporations and back. Now, with the new administration, with the FTC’s stiffer attitude about consumer rights (rightly or wrongly), and with these cases, we can expect history’s pendulum to swing the other way.

Conclusion

Write “Gooder.” These agreements do not have to be so dense and they do not have to have such onerous terms. The right of retroactive modification was a term just waiting to be shot down. Too often, lawyers just copy and paste a TOU from another site. Or, perhaps they have to justify their legal fees on a topic that is perceived by clients as unimportant boilerplate. Whatever the reason, this case should be a shot across the bow that attorneys put their clients at greater risk with such legal intricacies as we now see in EULAs.

Perhaps we’ll get some online agreements that are actually well-drafted; that do not read like fine print; and that provide better terms. But then, we believe in the Easter Bunny, too.